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Ontario Liberals: 10 years of Mismanagement of the Energy Portfolio

At the advent of the five (5) by-elections in Ontario and as we close in on the 10th anniversary of the current Liberal’s tenure as the governing party in Ontario it is time to look back on their management of the “Energy” portfolio. It is particularly appropriate to examine their past as the energy issue is bound to be on voter’s minds. Additionally, the current Minister of Energy, Bob Chiarelli, has embarked on what he refers to as a “review” of the Long-Term Energy Plan (LTEP) which was never a “plan”! When the LTEP was released in the fall of 2010 by Energy Minister, Brad Duguid it was to be a “guide” to the Ontario Power Authority (OPA) so that they could produce IPSP II. The original IPSP (Integrated Power System Plan) was thrown to the curb by George Smitherman when he held this portfolio and Chiarelli’s predecessor, Chris Bentley tossed LTEP II in the trash!

So let’s examine the list of energy events brought to us by the Ontario Liberal Party after they condemned the predecessor governments of Premier’s Harris and Eves for their management of that portfolio! Please note that the costs of the Liberal policies over the past 10 years are estimates based on the best information available. Here they are:

Ontario Power Authority:The Liberals created the OPA as a temporary agency to generate an IPSP. The OPA annually consumes about $75 million of tax dollars but is responsible for pricing and contracting all electricity generation including the OPG and Hydro One on transmission builds. Nothing happens without Ministry directives. When Smitherman took over the Ministry the OPA lost their mandate to actually plan via the GEA. The OPA was instrumental in generating the first and second IPSP which comprised tens of thousands of pages and input from various parties throughout the province. As noted, the two IPSP’s were eventually relegated to the trash bin at considerable cost to the ratepayers. Based on the annual budget of the OPA we estimate:

Total Costs over the 10 years since they were created: $750 million

Big Becky: A directive from the Minister of Energy caused Ontario Power Generation (OPG) to build what the current Minister refers to as the “largest renewable energy project in the world”. The cost of “Big Becky” (the new tunnel under Niagara Falls) cost Ontario’s ratepayers $1.6 billion for a marginal increase in hydro electric capacity. The 140 megawatts (MW) that it is rated at, had a capital cost of $11.5 million per MW. Presumably the “largest” reference in the Minister’s announcement refers to those excessive capital costs that were partially caused by being over budget by $600 million. It should be mentioned that “Big Becky” had been rejected by prior governing parties because it was deemed too expensive for the marginal power it would deliver. Normal “levilized” costs for new hydro generation should be in the $1/$1.5 million range or 10% of what Big Becky cost Ontario’s ratepayers.

Total Capital Costs for Big Becky: $1.6 billion

Pensions: When the Liberals came to power the pension plans of the publicly owned electricity sector were not in deficit. OPG and Hydro One are now in deficit by $4.8 billion caused by the excessive amounts spent by both to follow the directives of the Liberal Energy Ministers to build new infrastructure (related to renewable energy) and increasing staff levels to execute those directives instead of sticking to their traditional business roles.

Pension Deficit to be paid by ratepayers: $4.8 billion

Upper & Lower Mattagami:Yet another “directive” to the OPA directed them to negotiate a contract with the OPG for the upper and lower Mattagami project which was eventually contracted for $2.6 billion. This hydro electric project will also add marginal power to the Ontario grid and present itself principally in the spring months when the Ontario power demand is usually at it lowest, meaning we will either spill it or sell it to neighbouring states and provinces at a loss.

Ontario Electricity Financial Corp:The Ontario ratepayers are awaiting the release of the March 31, 2012 and March 31, 2013 Ontario Electricity Finance Corporation’s (OEFC) audited financial statements which the Minister of Finance, has not yet released. One must wonder why financial statements that were presumably delivered to the Minister a year ago have not found their way to the public. Have the Liberals somehow squandered the $2 billion or so that the ratepayers have been obliged to pay for the past two years? What are the Liberals hiding?

Total Estimate of Missing “stranded debt” monies: $2 billion

Transmission Builds: Yet again several of the Liberal Energy Minister’s directives instructed Hydro One to construct transmission lines to connect wind and solar energy projects to the grid. Those directives required Hydro One to spend billions of ratepayer dollars to build the transmission lines, purchase transformers for that purpose and included “reserving” transmission facilities for the Korean Consortium, commonly known as the Samsung contract.

Estimated Costs to hook up Wind and Solar to the Grid: $2 billion

Ontario Clean Energy Benefit: As energy costs rose the governing Liberal party became concerned that the ratepayers would balk at the huge increases they were seeing so they launched the “Ontario Clean Energy Benefit” (OCEB) which gave ratepayers a 10% rebate on their electricity bills. This burden of approximately $1.5 billion annually for the years 2011 through to 2014 will be added to the growing provincial debt but will end January 1, 2015.

Estimated Cost to taxpayers of the OCEB over 4 years: $6 billion

Smart Meters: Not to be forgotten is the $2 billion or more spent to install “smart meters” on each household throughout the province. These meters have provided no benefits to ratepayers despite all of the rhetoric from the Ministry. Recently Hydro Ottawa announced that they will be replacing 215,000 of their smart meters, installed only a few years ago, because they are deficient. How many more will need replacement by other local distribution companies (LDC) throughout the province is an unknown. It would appear that the Minister’s (Dwight Duncan) directive at that time didn’t require any standards—the Liberals just thought it was a good idea!

Estimated cost of the “Smart Meters”: $2 billion

Smart Grid: Another ongoing expense related to “smart meters” is the “smart grid” which the Independent Electricity System Operator (IESO) is working on. Preliminary estimates of the cost of the “smart grid” are in the $1.5 billion range and the “smart grid” is/was supposedly required to manage the intermittent power that is delivered by wind and solar along with management of “imbedded generation” (the small and microFIT generator hookups to the LDCs), the charging stations (for the 500,000 electric vehicles) that the Liberals foresaw being installed throughout the province and the ability to turn your air conditioner and refrigerator up at peak demand times.

Estimated Cost of developing the “Smart Grid”: $1.5 billion

Constrained Power: Also aligned with the smart grid was the need to constrain and pay for the power that the grid didn’t need from the “first to the grid” rights of wind and solar generated during times when the Ontario demand for power is low. Commencing in September 2013 we will pay those private developers for power “they might have been able to produce” but which would have caused problems that may have led to blackouts or brownouts. The estimates of this are unknown however 80% of the power they deliver normally presents itself when our demand is low so a best guess is that this will cost ratepayers in the area of $300/$400 million annually based on only the existing wind and solar generation presently installed.

Gas Plan Idling: Ontario’s ratepayers are also obliged to pay for idling gas plants (backing up wind and solar) at the rate of $15K per MW per month and with approximately 7,000 MW currently installed and another 1,200 MW contracted for that will cost ratepayers upwards of $1 billion annually.

Estimated Cost of idling Gas Plants over 20 years: $20 billion

Nuclear Steam Off: The grid problems that might be caused by wind and solar also affects the nuclear operations of Bruce Power who have been frequently called on to “steam off” power when the Ontario demand is low. The ratepayers are also obliged to pay for that steamed off power. Efforts to determine the costs to the ratepayers of that steamed off power have been fruitless as the grid operator does not post that information nor make it available for analysis. We would expect that as increasing amounts of wind and solar are added the costs will escalate and should easily approach $100 million.

OPG as scapegoat: The addition of intermittent electricity generation from wind and solar has had a direct effect on OPG operating revenue and profitability as it has lowered the wholesale price of the market, defined as the hourly Ontario electricity price or HOEP. OPG is basically the only market participant exposed to the HOEP so they have been selling their unregulated power from hydro and coal at low prices (2.4 & 2.6 cents a kWh [2012]) and since 2003 have seen their revenues fall by almost $2 billion dollars weakening their value to the shareholders; the Ontario taxpayer.

Estimate of Revenue Losses to OPG over the past 10 years: $15/20 billion

Class A to Class B transfer: As the rates climbed ever higher the Liberal government also heard from large industrial users in Ontario, who were being crippled by high electricity prices which coupled with the recession, cost Ontario an estimated 300,000 manufacturing jobs Extensive lobbying on behalf of those major electricity consumers led to the creation of an incentive for those large users to avoid peak demand days (perhaps by using diesel generators) which allowed them to offload a large portion of their share of the Global Adjustment. As a result the rest of the ratepayers (households and small and medium sized businesses) now pick up upwards of $200 million per annum in costs previously the responsibility of large users.

HST: Another cash grab from ratepayers came about when the McGuinty Liberals endorsed the concept of the HST which automatically increased ratepayers electricity bills by 8% which pretty well wiped out that taxpayer supported Ontario Clean Energy Benefit. The cost to the ratepayers is approximately $1.2 billion annually and will grow as electricity and delivery rates increase.

Estimate of Cost to Ratepayers of HST on Electricity Bills over 20 years: $24 billion

Green Energy Act: No list would be complete without referencing the Green Energy and Economy Act (GEA) which the Liberals (Energy Minister, George Smitherman) promised would only raise electricity rates by 1% per annum. The GEA has resulted in Ontario’s ratepayers seeing their electricity and delivery costs rise by over 100% and they have only absorbed about 30% of what the LTEP anticipates in the form of renewable energy. Ontario now has one of the most expensive prices for electricity in all of North America exceeded only by a very small number of US states and has become an unattractive place for investments that might have created jobs. The advent of the march throughout Ontario of industrial wind turbines and solar panels has also had a direct effect on property values of homes located in proximity (within 5 kilometers) to their installation (this will eventually negatively affect the municipal tax base), killed birds and bats, destroyed forest land (via road construction for their installation) and caused various health problems for many families living anywhere near those 500 foot monsters. Most of the costs of the GEA are captured above but a couple of aspects are not and those relate to; “conservation” spending and the monies lost on exporting our “surplus power” below it’s cost. The OPA annually spend over $300 million on conservation efforts and it now appears surplus exports are costing (based on the recent estimates) ratepayers about $500 million per year.

The biggest issue related to the latter is that the GEA took away the democratic rights of people to object to the construction and siting of these generators. Municipalities were stripped of their ability to stop any of these developments due to the structure of the GEA claiming NIMBYism would not be allowed in the quest to “green” Ontario. Recent events by the current Energy Minister, Bob Chiarelli has paid lip service to that issue by conducting a “study” of siting procedures. The Minister doesn’t claim that he will give those rights back! Conveniently the report is not due out until after the upcoming by-elections so voters in those 5 ridings will be kept in the dark and clueless on whether the Liberals will amend the GEA. The wisest move by voters will be to count on the GEA being left intact.

Gas Plant Moves:If the reader has got this far they will notice that there is one significant item missing from the list above and that of course is the cost of moving those two gas plants from Mississauga and Oakville. The reason to not list it is that the Auditor General’s report on the Oakville move will not be released until late August. The media has consistently stated that the overall costs associated with the moves was $585 million but the likelihood is that the costs will in fact be higher.

Estimated Costs of Gas Plant Moves: $1 billion

Many other ratepayer costs are not listed but most of those above are measured in the hundreds of millions or billions of dollars. There are many other Liberal energy enacted policies measured by tens of millions that would include, the Northern Ontario Energy Credit, the Ontario Energy and Property Tax Credit, electric vehicle grants, the Community Power Fund, the Northern Industrial Electricity Rate Program, etc. just to name a few.

All ratepayers in the province look forward to the day when the Minister of Energy will simply act as the overseer on these publicly owned electricity institutions instead of know-it-alls, led by the nose by unelected environmentalists (OSEA, Environmental Defence, Pembina, David Suzuki Foundation, etc. etc.) bent on saving the world from global warming. We have had a succession of those Liberal lemmings occupying the Ministry chair for the past 10 years and all it has done is to make foreign companies, and perhaps some Liberal insiders like Mike Crawley, rich while draining the pockets of the ratepayer/taxpayer.

While executing those policies, they have ignored real infrastructure problems in the energy portfolio. A recent example of the foregoing was the loss of electricity experienced by hundreds of thousands of people living in the GTA as a result of the floods. Those floods caused the Hydro One Manby transformer station to flood and the grid in the southwestern GTA to collapse causing the outage. The weakness of the Manby station was known to the Liberal Ministers (and was the basic reason to plan for those two gas plants in Mississauga and Oakville) and should have been replaced several years ago but the Ministers ignored the recommendations to replace it and instead directed Hydro One to hook up wind and solar renewables.

Too bad we ratepayers and taxpayers can’t just hit the delete button to eliminate the past 10 years, much like the Minister’s senior staffers did to hide the bad news about the gas plants!

Parker Gallant, July 16, 2013

PS: For those toting up the numbers the above costs identified come to over $109 billion.

Comments

Nicely done, Parker. It is a pity that the current government seems to act more like an exploitative colonial power than one with stewardship responsibility for the economic well-being of their citizens. Clearly the vast bulk of us are poorer as a result of their actions, whatever their real motivation — although I am sure that the ‘right’ people have made a bundle off all these projects. A sorry heritage for our children.

You know what? I think there is way more to this than meets the eye. Pierre Trudeau is reported to have said that if you create a crisis for people to focus their attention on, they will not notice that the direction of the ship is changing. The presentation you have done is excellent but the part that scares me the most is when you refer to the Power Authority. To my mind that term is foreign because it is not traditionally Canadian vernacular. I would expect to hear that in the US. Is there political action going on about which the public is unaware? Hmmm, perhaps food for thought. The bottom line is, as long as the citizens of Ontario are content to let it all happen. we shall get what we deserve. If we don’t like it then let’s do something about it!